Catholic priests John Mark Chietnum and Donatus Cleopas were seized on July 15 in a church at Yadin Gura village in Kaduna state where they had stopped for the night, said Joseph Hayab, head of the Christian Association of Nigeria (CAN) in Kaduna.
On Tuesday Cleopas managed to escape from his abductors as they were leading him to a meeting point where they were expecting to receive ransom from a CAN envoy for his release.
Hayab negotiated for days with the bandits, who initially demanded 60 million naira (around $145,000) for both priests.
It was "unknown to us (that) one of them had been killed," said Hayab, adding that they had finally agreed on a "reasonable amount." He gave no details.
"Reverend Father Cleopas, who escaped from his abductors, confirmed to us that his colleague Reverend Father Chietnum was killed on the day they were kidnapped," Hayab told AFP.
"We were able to recover the body of the late priest, which has substantially decomposed, and we are going to conduct the burial tomorrow," he said.
"Our dilemma now is that the bandits have detained the man sent to deliver the ransom after taking the money," Hayab said.
Priests are "being deliberately targeted by bandits, who have in the past two years kidnapped 13 of them," he said.
Kaduna has been one of the hardest-hit states for gang attacks.
In March gunmen raided a passenger train between Nigeria's capital Abuja and Kaduna, killing eight and taking dozens hostage.